By: Money Navigator Research Team
Last Reviewed: 23/01/2026
FACT CHECKED
Quick Summary
In e-money accounts, most balance reductions are contractual debits (fees, FX charges, plan charges), transaction adjustments (reversals, refunds, chargebacks), or partner netting (for example, card/processor fees taken from settlement before funds reach the programme).
“Set-off” is a specific concept usually associated with banks combining accounts to repay a debt; that’s different from an EMI debiting fees from a stored value balance under its terms.
Safeguarding rules also matter: where relevant funds are held in safeguarding accounts, FCA guidance expects the safeguarding bank/custodian to have no right of set-off over those safeguarded funds (with limited regulatory exceptions), which is separate from what the EMI can charge to the user under contract.
This article is educational and not financial advice.
Definitions: “set-off” vs “deductions” in an EMI account
What “set-off” usually means
In the UK, “set-off” (sometimes called combining accounts) is commonly discussed in a banking context: a bank uses money in one account to reduce a debt owed to it (even if the right isn’t spelled out in every set of terms).
The Financial Ombudsman Service summarises how complaints about a bank’s right of set-off are typically assessed in its guidance on the right of set-off.
That definition is useful here because customers often describe any unexpected debit as “set-off”, even when it’s actually a different mechanism.
What “deductions” usually mean in an e-money account
For e-money, the practical reality is usually: the account is a stored value balance (not a deposit), and the provider’s terms define when it can debit fees or apply adjustments to reflect how payment systems settle.
If you want the safeguarding backdrop (separate from fees), our operational explainer on how safeguarding accounts work in practice covers where funds may be held and who can control movement: Safeguarding accounts in practice: where funds are held and who controls release.
Where fees and deductions come from in EMI programmes
1) Contractual fees the provider debits from the stored balance
Many EMI programmes debit charges directly from the stored balance (where the contract allows it). Common examples include:
plan or subscription charges
outgoing payment fees
card replacement/expedite fees
FX and cross-border charges
cash withdrawal charges (where supported)
The legal “anchor” for transparency requirements depends on the customer type and the product structure, but the framework for information requirements sits in the UK’s payments legislation (see the Payment Services Regulations 2017 (PDF)).
2) Transaction adjustments that look like fees (but are settlement mechanics)
Some reductions are not “fees” so much as settlement outcomes:
card presentments arriving after an authorisation expires
offline or delayed presentments
reversals that don’t arrive when expected
refunds that settle later than the original payment
chargeback outcomes and representments
These are often experienced as “why did my balance drop days later?” Even without wrongdoing, payments can be non-linear because schemes and processors have their own timelines.
If you’re mapping the dispute side during insolvency (rather than day-to-day), this guide is a useful adjacent read: Card disputes in administration or liquidation: what happens.
3) Partner net settlement and “fees upstream”
In many programmes, not every fee is debited inside the EMI ledger. Some fees are netted off upstream (for example, in a processor settlement report) before funds reach the programme’s operating accounts.
The customer experience can still be “my balance is lower,” but the mechanic is different: it is the programme receiving less from settlement, then reconciling that back into customer balances according to the terms.
This is one reason operational restrictions can amplify confusion: when partners slow or pause payouts, it’s harder to reconcile and post adjustments quickly. Related context (not identical to safeguarding) is covered in:
Bank restriction triggers: processor holds, reserves and payout delays
Why payment processors hold payouts during account restrictions
The safeguarding angle: can a safeguarding bank “set off” against safeguarded funds?
This is where people mix up two different layers:
The user/provider contract (what the EMI can charge the user)
The safeguarding relationship (what the safeguarding bank/custodian can do with relevant funds held for users)
FCA guidance on safeguarding is explicit about expectations that the safeguarding bank/custodian should have no interest in, recourse against, or right (including set-off) over relevant funds in safeguarding accounts (subject to limited regulatory exceptions).
See the FCA’s additional safeguarding guidance for payment and e-money firms and its template safeguarding acknowledgement letter:
FCA additional safeguarding guidance for payment and e-money firms (PDF)
FCA template safeguarding bank/custodian acknowledgement letter (PDF)
The regulations underpinning this sit in the UK payments and e-money regime (see the Payment Services Regulations 2017 (PDF) and the Electronic Money Regulations 2011 (PDF)).
Practical translation:
The safeguarding bank taking money from a safeguarding account to cover unrelated debts of the EMI is not the same thing as the EMI debiting a user-facing fee from the stored balance under contract.
If a safeguarding bank is charging the EMI for banking services, the programme design usually needs to ensure those charges do not compromise the safeguarding pool (the detail is contractual and operational, and can differ by programme).
Summary table
| Scenario | Outcome | Practical impact |
|---|---|---|
| EMI debits a plan or transaction fee from stored value | Balance decreases immediately when fee is posted | Looks like a “deduction”, but it’s a contractual debit |
| Card payment settles higher/later than expected | Balance decreases after settlement file posts | Appears “delayed”, driven by scheme settlement timing |
| Refund/chargeback lifecycle completes | Balance changes when final outcome is posted | A prior credit/debit can be reversed or netted |
| Processor nets fees from settlement before programme funding | The programme receives less, then reconciles customer balances | Users may see fees/adjustments posted in batches |
| Safeguarding bank applies set-off to safeguarding funds | FCA expects no right of set-off (limited exceptions) | This is a safeguarding-structure issue, not a user fee issue |
| Provider enters special administration | Distribution costs can reduce net return | Customers may receive less after costs, even if safeguarded |
What changes during failure: “deductions” can include distribution costs
If an e-money provider fails, the UK has a special administration regime intended to prioritise returning customer funds. GOV.UK summarises why the regime exists and its objective to return customer funds promptly in its page on the independent review of the PESAR framework.
A separate practical point is that insolvency processes can involve costs of distribution, which can reduce the net amounts returned. HM Treasury’s explanatory memorandum for the 2021 regime changes notes that customers in some historic cases received reduced monies after distribution costs (see the HM Treasury explanatory memorandum to the 2021 special administration regime (PDF)).
If you need a process/timelines view (rather than deductions), these two guides focus on access mechanics:
What happens if an e-money provider enters administration: access steps and delays
E-money business accounts: safeguarding access if a provider fails
Scenario Table
| Scenario-level | Process-level | Outcome-level |
|---|---|---|
| Contract fees | Provider posts a fee debit per tariff/plan and ledger rules | Stored balance reduces; may trigger a negative balance if permitted |
| Scheme settlement variance | Settlement files adjust the ledger after authorisation | “Late” balance changes that look like unexplained deductions |
| Chargeback lifecycle | Dispute moves through scheme stages and finalises | Provisional credits/debits can be reversed or confirmed |
| Upstream net settlement | Processor nets fees/adjustments before programme funding | Customer ledger reflects net position after reconciliation |
| Safeguarding controls | Safeguarding account is designated; set-off rights restricted | Bank/custodian set-off against safeguarded funds is constrained |
| Special administration | Reconciliation + distribution costs apply before return | Net return may be reduced after distribution costs |
Compare Business Bank Accounts
Banks and e-money providers can look similar in an app, but the mechanics behind “set-off” and “cover” differ.
Banks: set-off is a familiar concept; the Financial Ombudsman Service describes that banks generally have a right of set-off in its guidance on the right of set-off.
E-money providers: customer funds are generally safeguarded rather than held as deposits, and the FSCS explains that it does not provide its “quick and easy compensation service” for money held with e-money institutions (see the FSCS article on e-money and FSCS cover).
For the broader bank account landscape (separate from e-money), see our business bank accounts hub.
Frequently Asked Questions
Not usually.
- “Set-off” is most commonly discussed as a banking concept where a bank uses funds in one account to reduce a debt owed to it, sometimes even where the wording isn’t prominent in the contract. The Financial Ombudsman Service summarises that concept in its guidance on the right of set-off.
- In an EMI account, most balance reductions are contractual debits (fees) or transaction adjustments (settlement/refund/chargeback outcomes). The effect can look similar (“my balance went down”), but the mechanism is usually ledger posting under the programme terms rather than a bank combining accounts.
Some programmes include plan or account maintenance charges that can be debited regardless of transaction volume, as long as the charge is part of the contract and properly disclosed.
Operationally, this can matter because the stored balance is often the simplest place to post recurring charges. Whether a provider chooses to do this via stored balance debits or via separate invoicing varies by programme design.
Card payments can settle after authorisation and can be affected by delayed presentment, offline transactions, tips, or partial reversals. A balance can therefore change again when settlement data is finalised and posted.
This can feel like a fee because the timing is delayed, but it’s often settlement mechanics rather than an additional charge. The ledger is being aligned with what actually settled through the scheme and processor.
A chargeback lifecycle can result in debits or credits depending on the stage and final outcome. That can reduce a stored balance if the programme allocates dispute outcomes to the account holder’s ledger position.
If a provider enters an insolvency process while disputes are still moving through schemes, timing becomes more complex. This is why disputes and insolvency often need to be understood together; see card disputes in administration or liquidation: what happens.
Partners often charge fees at the programme level (processor fees, scheme fees, network fees). In many setups, those fees are netted from settlement before funds reach the programme’s operating accounts.
From the user’s perspective, the deduction may still appear as a ledger posting, because the programme reconciles net settlement back into user balances. The key distinction is “fee withheld upstream” versus “fee posted directly to the user ledger”.
FCA guidance expects the safeguarding bank/custodian to have no right of set-off over relevant funds held in safeguarding accounts (subject to limited regulatory exceptions). The FCA’s safeguarding guidance and its template acknowledgement letter describe these expectations clearly.
This safeguarding constraint is separate from what the EMI can charge users under contract. The safeguarding layer is about protecting the pool of relevant funds from the EMI’s creditors and from the safeguarding institution asserting rights over that pool.
Some programmes treat a stored balance as strictly non-negative; others allow a negative position to arise (for example, if a settlement or chargeback posts when the available balance is insufficient). Whether negative balances are permitted depends on product design and terms.
Where negative balances are possible, the programme may record an amount owed and may apply incoming funds to that position first. That can look like “incoming money disappeared”, but it may be a netting of the account position.
Restrictions can affect outgoing payments or withdrawals, but they do not necessarily stop ledger postings (fees, adjustments, chargeback outcomes) because those can be driven by settlement files, contract schedules, or partner reporting.
Restrictions can also increase timing gaps: if partners pause payouts or funding, reconciliation can become less frequent. For adjacent operational context, see processor holds, reserves and payout delays and why payment processors hold payouts during restrictions.
Yes, but the nature of deductions can shift. In a failure scenario, the emphasis is on identifying relevant funds, reconciling claims, and distributing funds – often under the special administration regime described by GOV.UK in its PESAR review materials.
Importantly, insolvency distribution can involve costs that reduce the net amounts returned to customers. HM Treasury’s explanatory memorandum for the 2021 regime highlights that customers in some cases received reduced monies after the cost of distribution.
FSCS deposit cover is associated with deposits held at banks/building societies/credit unions, not stored value held with an e-money institution. The FSCS explains that it cannot provide its “quick and easy compensation service” for money held with e-money institutions in its article on e-money and FSCS cover.
That does not mean the provider is unregulated; it means the protection mechanism is different (safeguarding and insolvency process rather than FSCS payout). This distinction is explored in our internal comparison guide: Safeguarding vs deposit cover: EMI protections vs FSCS bank accounts.
Most “mystery deductions” in e-money are not a hidden right to raid funds; they are the visible surface of three back-end mechanisms:
- Contractual debits (fees posted to the ledger)
- Scheme/processor settlement reality (where the final settled amount can differ from the original authorisation timing),
- Netting upstream (partners deducting fees/adjustments before the programme is funded, then the programme mapping the net position back to user balances)
Safeguarding adds a separate constraint: the safeguarding bank/custodian is expected not to have set-off rights against the safeguarded pool, which is a different question from whether the programme can charge the user under the contract.
Sources & References
Financial Ombudsman Service guidance on the right of set-off
FCA additional safeguarding guidance for payment and e-money firms (PDF)
FCA template safeguarding bank/custodian acknowledgement letter (PDF)
FCA Payment Services and Electronic Money: Approach Document (PDF)
GOV.UK page on the independent review of the PESAR framework
HM Treasury explanatory memorandum to the 2021 special administration regime (PDF)
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